Court of Appeal takes broad view of “control” for disclosure purposes

The Court of Appeal has held that in determining whether documents in the possession of a third party are in a litigant’s control, and therefore fall within its disclosure obligations, the court must have regard to the true nature of the relationship between the litigant and the third party. Where there was reasonable ground to infer that the trust was a device to put the litigant’s assets beyond the control of creditors, and the trustees would take whatever steps the litigant wished in the administration of the trusts, the court was entitled to view documents in the physical possession of the trustees as within the litigant’s control. This was akin to agency, so that the litigant could properly be seen to have a right to possession of the documents: North Shore Ventures Ltd v Anstead Holdings Inc & Ors [2012] EWCA Civ 11.

The Court of Appeal went so far as to say, albeit obiter, that the definition of “control” under CPR 31.8 is not exhaustive, so that a document may be within a party’s control even if it does not fall within the sub-paragraphs of that rule, i.e. the party has neither physical possession of the document, nor a right to possession of it, nor a right to inspect or take copies of it. For example, the court said, if the parties to the arrangement had caused the documents to be held in a jurisdiction whose laws would preclude the third party from handing them to the litigant, it would still be open to the English court to find that as a matter of fact the documents were within the latter’s control. This view may be seen as surprising, and could lead to some uncertainty, although in practice the courts are unlikely to broaden the boundaries of “control” far beyond the categories set out in CPR 31.8.

Background

North Shore was owed approximately US$35 million by the appellants under a judgment debt. The appellants had sworn affidavits in response to requirements under freezing orders obtained by North Shore in which they stated that they had disposed of virtually all their property to certain trusts. Following judgment, to assist with enforcement, North Shore obtained an order under CPR 71.2 requiring the appellants to produce certain trust documents. The appellants appealed on the basis that they were no longer discretionary beneficiaries of the trusts and did not have the documents, and that the order should be qualified so as to apply only to documents within their possession, custody or control. (North Shore also obtained an order that the wives of the two appellants disclose such of the documents as were within their control, as they remained discretionary beneficiaries and so could obtain the documents from the trustees or from their professional advisers – see post.)

Under CPR 71.2, the court may order a judgment debtor to attend court to provide information needed to enforce a judgment, including to produce documents in the debtor’s control which are described in the order. There is no definition of “control” in CPR 71.2, but the same term is used in CPR 31.8 which provides:

(1) A party’s duty to disclose documents is limited to documents which are or have been in his control.

(2) For this purpose a party has or has had a document in his control if – (a) it is or was in his physical possession; (b) he has or has had a right to possession of it; or (c) he has or has had a right to inspect or take copies of it.

Decision

The Court of Appeal upheld the disclosure order. It held that in determining whether documents in the possession of a third party are in a litigant’s control, the court must have regard to the true nature of the relevant relationship. Where, as here, there was reasonable ground to infer that the trust was a device to put the litigant’s assets beyond the control of creditors, and the litigant was in effect the “puppet master” directing the actions of the trustees, the court was entitled to find that documents held by the trustees were within the litigant’s control.

The court considered the House of Lords judgment in Lonrho v Shell [1980] 1 WLR 627, which was relied on by the appellants. In that case it was argued by Lonrho that documents held by certain foreign subsidiaries were within Shell’s “power” under the predecessor rule to CPR 31.8, because Shell (and the other 50% shareholder) could have obtained possession of them by (inter alia) procuring alteration of the relevant companies’ articles of association and, where relevant, applications for ministerial licences permitting the disclosure. The House of Lords rejected this argument, saying that the word “power” must mean “a presently enforceable legal right to obtain from whoever actually holds the document or inspection of it without the need to obtain the consent of anyone else”. However, despite giving a definition of “power”, the House of Lords also stated that the facts of the case were so exceptional that it was not an appropriate occasion for a “general disquisition” of the principles applicable to discovery of documents, and recognised that different considerations may apply to “one-man” companies. In the present case the Court of Appeal commented that this showed “some tension” in the judgment.

The Court of Appeal said that if one asks the question what “different considerations” may apply in the case of the one-man company, the answer lies in the fact that the owner/controller of the company is likely to have the real say whether to produce a document, since to obtain the “consent” of the company requires obtaining the consent of himself and no one else. The court said it did not have to decide whether in such a case documents would have been in the “power” of the owner/controller of the company for the purposes of the predecessor rule but, as a matter of ordinary English, such documents would be within his “control” under CPR 71.2 and 38.1.

The Court of Appeal also referred to the case of Schlumberger Holdings Limited v Electromagnetic Geoservices AS [2008] EWHC 56 (Pat) in which the High Court held that documents of group companies were within a party’s control where the evidence showed that the party “has already enjoyed, and continues to enjoy, the co-operation and consent of the third party to inspect his documents and take copies … and where there is no reason to suppose that that position may change”. Although the court in the present case did not expressly approve or disapprove this decision, the thrust of its decision appears to support this “de facto” approach to the question of control.

Comment

This decision illustrates that the court will take a factual approach to the question of whether documents are within a party’s control, looking at the substance of the relevant arrangements rather than form. It appears to mark a more liberal approach to the requirement of “control” under the CPR, compared to the Lonrho definition of “power” under the predecessor rule which required “a presently enforceable legal right” to obtain a document or inspection of it. This however should not be taken too far. The House of Lords in Lonrho recognised that different considerations may apply in other situations, such as one-man companies, where the reality of the situation is different from the formal structure. The present case may simply be seen as another situation in which the court found that form differed from substance, and looked to the reality of the situation.

It is also worth noting that the Court of Appeal did not accept North Shore’s argument that the appellants had sufficient rights to the trust documents, simply by virtue of their status as beneficiaries or former beneficiaries, to put the documents in their “control” for disclosure purposes. The court said it was neither necessary nor possible to give a cut and dried answer to the question whether and when a court could order a beneficiary to disclose a trust document that was not in the beneficiary’s physical possession. It would depend on the nature of the document and the terms of the trust.

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